North Korea Comprehensive Construction Co., Ltd. (Law Firm continental Aju, Attorney Oi-tae, Counsel for the plaintiff-appellant)

The director of the tax office.

March 5, 2014

Seoul Administrative Court Decision 2013Guhap741 Decided September 26, 2013

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the court of first instance is revoked. The part of the Defendant’s imposition of value-added tax of KRW 463,427,640 against the Plaintiff on January 2, 2012, which exceeds KRW 160,328,222, which was imposed by the Plaintiff on January 2, 2006, shall be revoked.

1. Details of the disposition;

A. The Plaintiff entered into a contract to contract the construction cost of KRW 27.1 billion for a main complex building (hereinafter “instant building”) with an executor of general construction works and housing construction works, and with a lot board construction corporation in 2003 (hereinafter “splate construction”). In the lot board construction, the Plaintiff entered into a contract to contract the construction cost of KRW 27.1 billion for the construction of a new building (hereinafter “instant contract”).

B. On July 27, 2006, 14.85 billion won, among the construction cost under the instant contract, was not settled. On July 27, 2006, the Plaintiff entered into a real estate disposal trust agreement (hereinafter “instant trust agreement”) on unsold real estate among the instant buildings with 305 households [291 households, commercial buildings and 14 households (hereinafter “instant commercial buildings”)] on unsold real estate among the instant buildings, but did not issue a tax invoice.

C. Accordingly, on January 2, 2012, the Defendant: (a) determined that the Plaintiff entered into the instant trust contract by designating the instant commercial building as a priority beneficiary; and (b) determined as “supply of goods” under Article 1(1) of the Value-Added Tax Act; and (c) determined as the market price of the instant commercial building the price of KRW 4 billion, which is the expected sale price of the instant commercial building; and (b) notified the Plaintiff of KRW 463,427,640,00, which is the building price, as the tax base, KRW 2.66 billion; and (c) on January 2, 2012, the Defendant corrected and notified the Plaintiff of KRW 2,63,427

D. The Plaintiff filed an appeal on May 10, 2012, but was dismissed on October 31, 2012.

[Reasons for Recognition] Class A, Nos. 1, 3, 5, and No. 1, and the purport of the whole pleading

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

The expected sale price of the commercial building of this case is merely an internal estimate of the construction of a bar, and thus cannot be deemed a “market price of the goods supplied” as prescribed by Article 13(1)2 of the former Value-Added Tax Act (amended by Act No. 8142 of Dec. 30, 2006; hereinafter the same shall apply). Since there is no actual sale price of the commercial building of this case, the disposal of the commercial building of this case exceeds the market price pursuant to Article 50(1)2 of the former Enforcement Decree of the Value-Added Tax Act (amended by Presidential Decree No. 23595 of Feb. 2, 2012; hereinafter the same shall apply), Article 89(2) of the former Enforcement Decree of the Corporate Tax Act (amended by Presidential Decree No. 20619 of Feb. 28, 2007); Article 61(1)3 of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9916 of Jan. 1, 201, 2010).

B. Relevant statutes

The entries in the attached Table-related statutes are as follows.

(c) Fact of recognition;

1) In the instant contract, a lot construction has been repaid the construction cost preferentially from the proceeds from sale of the instant building (Article 8 of the Special Agreement). In the event of failure to recover the construction cost due to the unsold sale of the instant building, as to a specific household designated by the lot construction among unsold households, a management and disposal trust with the registration of preservation in the Plaintiff’s name as a beneficiary at the same time as the lot construction is completed, and an agreement was made to dispose of unsold households and recover the construction cost (Article 9(1)2 of the Special Agreement).

2) Since around 2004, the amount of construction cost not recovered from the sale price of the instant building, which was completed on or around June 2006, was 14,859,950,000 won. Accordingly, on July 27, 2006, the Plaintiff concluded the instant trust contract with the 305 household units unsold in lots (291 household units and 14 household units) as the first beneficiary of the construction of a lot. The sale price of the instant building and the disposal conditions under the instant trust agreement are set by the lot construction, and the Plaintiff did not raise any objection (Article 8 of the Special Agreement).

3) On May 31, 2006, upon completion of the construction of the instant building, a lot construction changed the construction cost by settling accounts of apartment sale price, etc., and calculated the sales expected to be sold in commercial buildings at KRW 4,002,700,000.

4) The Plaintiff and Barun Construction considered the estimated sale price of 305 households unsold in lots (including the instant commercial buildings) to the extent of KRW 14,859,950,00, which is the amount equivalent to the unpaid construction price under the instant contract, and settled the unpaid construction price through the instant trust contract and treated the obligation for the payment of the construction price as fully repaid, and there was no further settlement of construction price due to the sale of unsold buildings unsold in lots, including the instant commercial buildings. Meanwhile, on December 31, 2007, the Plaintiff completed the settlement of construction price under the instant trust contract with the instant trust contract, and notified the ownership transfer as soon as possible, as the ownership of unsold real estate was constructed in lots.

5) The details of sale of a lot construction after the instant trust contract are as follows.

Table (units: 149,962 371,761, April 17, 2013, 154, 183 367,924 (State 1062,410,717) 1062,410,717. 38,500,872

Note 1) 367,924

[Ground of recognition] Each entry of Gap evidence of Nos. 1 through 4, 6, 7, Eul evidence of No. 2 through 4 (including branch numbers), and the purport of the whole pleadings

D. Determination

1) The instant trust contract pays the construction price to unsold housing and commercial buildings in accordance with the terms and conditions set forth in the instant contract between the Plaintiff and the Plaintiff. The Plaintiff’s provision of the instant commercial building in lieu of the construction price is a substitute payment under Article 466 of the Civil Act that provided other benefits in lieu of the performance of money, which is the original obligation, and thus, the instant commercial building cannot be deemed to have been supplied to the Plaintiff in return for the provision of the instant commercial building and the claim against the Plaintiff in return for the provision of the instant commercial building, and thus, it constitutes a case of receiving the price in cash. Accordingly, the instant trust agreement constitutes the supply of goods under Article 6(1) of the former Value-Adde

2) Article 13(1) of the former Value-Added Tax Act provides that “The market price of goods or services supplied by the person in question shall be the tax base of value-added tax in cases of goods supplied other than money.” Article 50(1)1 of the former Enforcement Decree of the Value-Added Tax Act provides that “The prices of goods or services supplied by the person in question shall be the prices continuously traded or generally traded between a third party in a situation similar to the pertinent transaction with a person in a special relationship” under each subparagraph of Article 13(1)

3) As to the instant case, the Plaintiff: (a) the construction cost was agreed to be appropriated from the sale price of the instant building at the time of the conclusion of the instant contract; (b) the Plaintiff and Construction was in a relationship between the Plaintiff and the Si/Gunn Construction; (c) there is no reason to deem that the sale price was determined based on the Plaintiff’s interest and the profits of the Si/Gunn Construction; and (d) there is no reason to deem that the sale price would be objectively unfair; and (c) the Plaintiff notified that the construction price was no longer paid; (d) the additional construction price was not settled in relation to the instant contract at the second date of pleading of the first instance trial; and (e) the Plaintiff and Don Construction was in a relationship between the Plaintiff and the Si/Gunn Construction; and (e) the amount of the construction price traded by the Plaintiff through the instant trust contract at the low price of the value-added tax and the sale price of the instant commercial building would normally be deemed to have been settled under Article 10(1)3 of the former Value-Added Tax Act.

4) Therefore, the instant disposition that calculated the tax base based on the expected sale price of the instant commercial building is lawful.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit, and the judgment of the court of first instance is just, and the plaintiff's appeal is dismissed. It is so decided as per Disposition.

[Attachment]

Judges’ aid (Presiding Judge) Transfering of permanent equipment

(1) On April 17, 2013, the sales contract amount with the Nonparty is the amount of sales contract. However, the tax invoice prepared on the same day was written in KRW 239,150,670 due to the advance payment.